D2C03 Business Engaged In Wine Production

Question 1

List major types of business engaged in the production of wine

Answer 1

• Estates
• Growers
• Grower-producers
• Merchants
• Co-operatives
• Custom crush facilities
• Virtual winemakers/wineries
• Conglomerates

Question 2

What is an estate producer; list the advantages and disadvantages of an estate producer

Answer 2

Produces wines exclusively from own vineyards (wholly owned or leased)

Advantages:

• Retains control over entire process - choose final style of wine
• No intermediaries direct market & sale,
• Retain 100% profit
• Marketing benefits: ‘estate-bottled’ authenticity, tell story, presitge of “single vineyard”

Disadvantages

• Takes 100% of costs also - drives own/lease decisions
• Takes 100% of risk.
  
  • Difficult vintage= reduced production, higher price which customers may not be willing to pay

Question 3

Why are large estates financially more viable than smaller ones?

Answer 3

• Volumes deliver economies of scale in production and ROI is quicker.
• Same equipment cb used across different varieties
• Many larger vineyards are by design easier to mechanize
• Smaller vineyards cb mechanised if they lie adjacent, otherwise costly if at all possible.

Question 4

List some reasons why the average vineyard tend to be small in many traditional wine-producing regions

Answer 4

Historical factors: French succession laws

Geography: in hillier regions, vineyards are limited by the terrain

Question 5

Describe the role of growers and list advantages and disadvantages of this option

Answer 5

• Own small vineyards
• cannot justify the cost of buying/iring expensive winery equipment
• do not want to have to market and sell wine

Advantages

• Cash flow smooth - payment due when grapes are sold
• Single Focus: produce best possible grapes

Disadvantages

• Vintage variation price impact (higher if fruit is in demand, but pot very low if excess fruit from good season, and potentially cannot sell all)
• Fluctuation in supply and demand
• Price impact In either case, this will result in reduced profits or a loss.

Question 6

Two options for growers to sell grapes? Advantages and disadvantages?

Answer 6

Enter into contract with producer or merchant:

• certainty, security, strong working relationship;
• need to meet certain standard,
• cannot obtain higher price when demand increases

Sell on the spot market

• higher risks but greater rewards

Question 7

What are grower-producers; what are the advantages and disadvantages of this option

Answer 7

Growers that produce wine, sell to a merchant to mature and bottle

• common in Burgundy.

Adv:

• no cost of maturation or marketing

Dis:

• smaller profit;
• lose control over style of finished wine; may be blended with wine from other producers

Question 8

Describe the role of the Merchant in Wine Industry, listing adv and disadv.

Answer 8

• Traditionally called a “Negociant” a merchant that buys immature wine, matures and sells under own name
• often blends from different prod prior to bottling
• Some are also grower-merchants own vineyards & control the growing/winemaking as well
• may provide technical advice to other growers to obtain required quality of grapes/juice/wine for their end product

Advantages

• cost of buying, managing vineyards, avoided (beneficial in Burgundy, Champagne - vy not avail anyway)
• particularly in Burgundy - small size vy gave rise to “micro-negociant” who works with the smaller producers ultimately to prod top Q wines selling at super-prem prices
• protection and flexibility in bad vintages
• some have have suff qty to supply private label wines to supermarkets/ddiscounters, another route to mkt
• has the flexibility to leverage the AOC of the produced wine where it is advantageous, or to label under own name.

Disadvantages

• Little control - growing or winemaking process - mitigate by offering technical support to their suppliers
• Spot market price can be high - mitigate by long-term contracts with suppliers

Question 9

Explain the rise of micro-négociant in Burgundy

Answer 9

Land is seldom sold and price is very high Micro-négociant therefore specialise in small-production wines usually from individual vineyards that often achieve super-premium prices Some work closely with particular growers, others buy on the spot market to be assured of best-quality fruit

Question 10

What is en primeur

Answer 10

Also called “Wine futures”

• method of selling wine before it has been bottled
• Purchasers buy the wine whilst it is still in barrel
• Wine remains in the producer’s cellar until ready for bottling
• Purchaser receives the wine once bottled, usually a few years later
• Suits wines that benefit from a period of maturation in barrel (usually 18m or more) and those prized by investors, such as Bordeaux, Burgundy, Rhône, Super Tuscans, Vintage Port

Advantages:

For producers: generate cash-flow earlier, get a sense of the market for setting price

For purchasers: cheaper and easier to buy wine

Question 11

What are co-operatives List the advantages and Disadvantages of this model

Answer 11

Owned by a group of growers, produce, sell wines from members’ grapes

Advantages /Benefits

• Pool financial resources gives access to:
  
  • expensive winemaking equipment and expertise;
  • expert viticultural and winemaking services, advice
  • marketing, packaging and sales services
• Marketing collectively can be more efficient and effective, e.g., Plaimont in south-west France, Badischer Winzerkeller in southern Germany
• Can make own-label wines since they can make a large volume of entry-level wine, e.g., La Chablisienne in Chablis, Mont Tauch in Fitou
• More modern co-ops are dynamic, excellent at marketing, operate at a profit which partially is invested in latest tech, mktg, labelling

Disadvantages

• Democratic control ~ slow decision making
• More traditional might be not quality focused if paid by weight

Question 12

What is custom crush facility

Answer 12

A variant of the co-operative model found mainly in North America, particularly California

• Growers do not own facility but pay each time they require its services

Adv:

• None of the downside of cooperatives
• Do not need to invest in expensive equipment, can focus on grape growing and marketing
• Benefit from expertise of professional winemakers

Dis:

• communication is vital. Otherwise grower will pay to have a wine style not wanted

Question 13

What are virtual winemakers/wineries

Answer 13

• Found mostly in North America
• Winemakers who do not own vineyard land or winemaking facilities
• Buy grapes and juice and rent facilities in another winery or employ the service of a custom crush facility
• Produce wines at both premium and inexpensive price points.

Question 14

What are conglomerates - what are the advantages of their business model

Answer 14

Very large companies who own many smaller businesses across various stages of the supply chain

• from production to distribution.
• Some of them have interest across all the alcoholic products

Advantages

• Have businesses across the supply chain
• Can set up regional offices in markets important to them
• Greater control at all stages of the route to market
• Reduce need to pay intermediaries
• Significant negotiating power, can strike hard bargain

Question 15

List top 10 wine-producing companies in 2016

Answer 15

• E&J Gallo, USA
• Constellation Brands, USA
• The Wine Group, USA
• Treasury Wine Estate, Australia
• Vina Concha y Toro, Chile
• Castel Frères, France
• Accolade Wines, Australia
• Pernod Ricard, France
• Grupo Penalor, Argentina
• FeCoVitA, Argentina

Question 16

Examples of major companies buying into the wine sector

Answer 16

Moët Hennesy-Louis Vuitton own brands

Moët Chandon, Veuve Clicquot, Krug, Cloudy Bay

Insurance company AXA:

top estates in Bordeaux and Burgundy, Quinta do Noval (Port)